Why San Francisco’s big business tax for homeless relief succeeded after Seattle’s crumbled

Two tech hubs, two crises of homelessness, two taxes on big business, two very different outcomes.

San Francisco voters on Tuesday approved a new tax on the city’s top-grossing companies to double the city’s budget on housing and services for the homeless. In many ways, Proposition C mirrored Seattle’s short-lived “head tax,” a controversial piece of legislation that would have collected nearly $50 million annually from the city’s biggest companies on a per-employee basis.

Salesforce’s headquarters in San Francisco. The company and its CEO Marc Benioff were instrumental in supporting the city’s successful Prop C to fund housing and homeless services. (GeekWire Photo / Todd Bishop)

But in other — ultimately fatal — ways the head tax differed from Prop C. San Francisco’s new tax was approved by voters, rather than the City Council, as was the case in Seattle. Prop C applies to companies with more money, too. Only businesses with more than $50 million in revenue will be on the hook for the tax. In Seattle, the tax applied to all companies with more than $20 million in gross receipts.

Salesforce CEO Marc Benioff, along with his company, poured millions of dollars into the Prop C campaign. Benioff also took on fellow San Francisco tech CEOs who opposed the measure in public Twitter spats and interviews.

“Prop C also didn’t encourage tech companies to shift even more from employees to contractors for roles, as a real estate agent or a delivery driver, which was Redfin’s issue with the head tax,” Kelman added.

Prop C enacts a 0.16 to 0.65 percent tax on gross receipts, rather than employees. In Seattle, companies would have been taxed several hundred dollars per employee. That’s because Washington state prohibits entities from taxing income, leaving the City Council with limited options for creating new taxes.

Update: The future of Prop C is in question. On Wednesday, San Francisco Controller Ben Rosenfield said he didn’t plan to spend the funds brought in by the tax until a legal dispute over its future is resolved.

Mountain View, Calif., the hometown of Google passed a tax similar in structure to Seattle’s head tax Tuesday. It will charge businesses up to $149 per employee, raising millions of dollars to help the city tackle issues like housing costs and traffic. Larger companies will have to pay more per employee than small ones, with Google paying 60 percent of the tax revenue.

Homelessness has confounded both San Francisco and Seattle, two cities that many billionaires call home, where massive wealth is created through booming technology industries. But as innovation made the rich richer and drew thousands of newcomers attracted to high-paying jobs, it also caused housing prices to skyrocket, burdening tech workers’ low-income neighbors.

“The only way to significantly reduce the immediate crisis of 7,500 individuals & 1,200 families languishing in the streets is to scale up now,” Benioff said on Twitter before the measure passed. “Prop. C doubles what San Francisco already spends to assist homeless people & keep them housed.”

The San Francisco Controller estimates the tax would raise $250-$300 million per year for housing and homeless services. Benioff, whose company would be on the hook for about $10 million a year, says the funds are urgently needed to address the crisis.

Other leaders in the San Francisco tech industry expressed concerns about the tax in the days leading up to the election. Twitter and Square CEO Jack Dorsey said the tax was the wrong approach, instead endorsing San Francisco Mayor London Breed’s plan to tackle the city’s homelessness crisis. Stripe general counsel Jon Zieger criticized the proposition because it would “double spending for homeless services without a comprehensive plan,” in an op-ed run by the San Francisco Chronicle.

Benioff called out his peers who opposed Prop C, claiming Dorsey “just doesn’t want to give, that’s all,” in an interview with The Guardian. “He hasn’t given anything of consequence in the city,” Benioff added.

Benioff’s remarks contrast with the positions of leaders in the Seattle tech industry who publicly opposed the head tax. Amazon took its opposition further, threatening to slow or stop its growth in Seattle if the tax passed.

Rachael Ludwick, a software engineer and affordable housing activist supports the head tax at a City Council meeting. (GeekWire Photo / Monica Nickelsburg)

Rachael Ludwick is a Glowforge engineer who campaigned in support of Seattle’s head tax. She also believes Benioff’s support made the difference in San Francisco.

“From my perspective, the main difference appears to be at least part of the business and tech community showed up, even while acknowledging the proposition is imperfect,” she said.

The Seattle City Council was originally pushing a tax of $500 per employee, per year, but Mayor Jenny Durkan brokered a compromise with the tech industry that reduced the number to $275. The Council unanimously approved the smaller head tax but, faced with a campaign to put a referendum on the November ballot, repealed it less than a month later.

“We repealed it as soon as it looked to be even slightly unpopular,” Ludwick said. “The businesses that Durkan worked with appear to have immediately threw in behind the repeal effort. As far as I know, no tech businesses put real money or influence on supporting our [tax].”

But Kelman stressed that Seattle has also made strides toward correcting its housing crisis that San Francisco has not.

There’s this narrative of despair where we haven’t done anything and can’t do anything and I really take exception to that.

For several years, Seattle has been implementing recommendations from HALA, the Housing Affordability and Livability Committee of renters, homeowners, and developers convened in 2014. Those included expanding the city’s housing levy and the Mandatory Housing Affordability program, which requires developers to include affordable units in their projects or pay into an affordable housing fund.

“There’s this narrative of despair where we haven’t done anything and can’t do anything and I really take exception to that,” he said. “I think that HALA was actually a major step forward. The reason that Seattle home prices have started to soften is because there’s been so much construction in the city. Rents are not rising because there’s a glut of homes for sale and for rent and I never thought I would say that but it’s almost directly because the city worked with builders to solve a problem.”

The cost of housing in Seattle is dropping dramatically. Home prices have declined $80,000 from their record high in the spring and rents have flatlined. But that doesn’t mean that the Seattleites most in need are seeing relief. It’s still one of the nation’s most expensive places to live, and affordable housing construction has not kept pace with the number of people who need it.

Still, Kelman is optimistic that programs like HALA will allow Seattle to learn from San Francisco’s struggles and correct its housing market without the need for a big business tax on the ballot.

“There’s rhetoric and reality,” he said, “and the reality, in Seattle, has actually gotten better because we passed a good law.”

Monica Nickelsburg is GeekWire’s Civic Innovation Editor, covering technology-driven solutions to urban challenges and the intersection of tech and politics. Before joining GeekWire, she worked for The Week, Forbes, and NBC. Monica holds a BA in journalism and history from New York University. Follow her @mnickelsburg

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